The central bank of Ghana announced on Wednesday a 200 basis point increase in the Cash Reserve Requirement (CRR) of banks from 9.0 percent to 11 percent.

This is the percentage of deposits mobilized by the banks which they must deposit with the central bank as reserves.

Announcing this at a press conference here after the 59th meeting of the Monetary Policy Committee (MPC) of the Bank of Ghana, Henry Kofi Wampah, Governor of the bank, said this measure was intended to mop up excess liquidity in the system while improving the liquidity position of the central bank to intervene in the market.

"To address the liquidity overhang and improve supply of foreign exchange in the markets, the cash reserve requirement (CRR) of banks has been revised upwards to 11 percent from 9.0 percent," Wampah announced.

On the other hand, the MPC, according to the governor, also decided to revise downwards the Net Open Position (NOP) limits of the banks.

He said this would address and improve supply of foreign exchange in the markets, with the time frame for implementation yet to be communicated to the banks.

"The single currency NOP has been reduced from 10 percent to 5. 0 percent and the aggregate NOP has been reduced from 20 percent to 10 percent," the governor announced.

The central bank in February introduced some stringent measures to curb the rapid depreciation of the local Ghana Cedi currency against the U.S. dollar by 7.8 percent between January and February 2014.

The governor identified the currency depreciation, coupled with periodic increases in the fuel and utility tariffs, as well as the supply and demand gaps in the economy as the major causes of the heightened inflationary pressures.

"The increase in the policy rate and the recent foreign exchange measures introduced in February have to some extent slowed down the pace of depreciation. However, vulnerabilities still remain," Wampah noted.

He said a strict adherence to budgetary estimates for 2014 was critical for macroeconomic stability, as reining-in the deficit should be a priority for government.

"This will not only create space for development spending but also reduce borrowing and pressure on interest rates. This will also help boost international confidence in the economy, encourage capital inflows and facilitate donor disbursements."

"It is quite laudable that they have increased the operational target, which in itself suggests the near-term outlook is not very favorable. Broadly, we all know that the economy is stressed," Sampson Akligo, an economist with Databank Ghana, commented.

He posited that although the intention of the Foreign Exchange (FX) guidelines were good, the prescription would clearly be more costly to the economy's competitiveness, hence the need to find a more market friendly approach.

"The market is uncertain, and policy measures seem not to be better aligned to current macroeconomic challenges. I think the market is at a stage where proper communication on policy remedies is needed; and this is quite urgent if we are to avoid irrational behaviors in the market," Akligo stated. Endi